It’s easy to feel optimistic about China-based electric vehicle manufacturer Li Auto (NASDAQ:LI). After all, retail traders heavily favor LI stock now.
Yet, this is why contrarians and value-focused investors should be concerned. Even if you like Li Auto’s future prospects, there’s nothing wrong with knowing when to take your winnings and walk away.
Hopefully, you listened when I recommended taking a $1,000 share position in Li Auto. That trade is working out pretty well, so far.
However, this is a good time to take partial for full profits if you bought Li Auto stock. Always remember: knowing when to get out is just as important as knowing when to get in.
Li Auto’s Impressive Results
Reportedly, auto sales in China cooled in June. Does that mean Li Auto struggled to sell vehicles? Not at all. Li Auto passed the 30,000-vehicle monthly delivery mark as the automaker delivered 32,575 vehicles in June.
That’s a 150.1% improvement on a year-over-year basis. Li Auto delivered 86,533 vehicles in 2023’s second quarter, up 201.6% year over year.
In the final analysis, some folks would consider a company’s growth to be more important than its size. Thus, Li Auto’s vehicle-delivery growth makes the company look like a winner.
Li Auto is also showing improvement on the financial front. The company swung from a 10.9 million RMB net earnings loss in the year-earlier quarter, to net income of 933.8 million in this year’s first quarter.
Keep your eyes peeled, as Li Auto is set to release its next quarterly financial report in August.
LI Stock May Have Gotten Ahead of Itself
It should be noted, however, that Li Auto’s vehicle margin decreased in 2023’s first quarter. That’s not necessarily a deal-breaker, but you’ll definitely want to watch for margin improvement in Li Auto’s upcoming reports.
What might be a deal-breaker, though, is the relatively high price of Li Auto stock. The share price has rallied from $23 and change at the beginning of May, to the high $30s in mid-July.
To quote Dana Blankenhorn, it’s “Time to take something off the table.” Blankenhorn observes that “Li’s focus is on the high end of the market,” even while China’s “economy is slowing” and “prices are falling.”
That’s a recipe for trouble.
Meanwhile, there are plenty of competitors out there. Just one of them is Toyota (NYSE:TM), which offers an affordable plug-in RAV4 vehicle model than can compete with Li Auto’s Li9.
In its rush of enthusiasm, the market is completely ignoring this risk and buying LI stock hand over fist.
Know When to Walk Away From Li Auto Stock
It’s still fine to maintain a small share position in Li Auto. If $1,000 is a small amount of money for you, then it’s okay to stay invested in Li Auto.
If you’re heavily invested, however, or if you’re understandably concerned about the risks surrounding Li Auto, then feel free to cash out of LI stock.
With this stock and others, taking partial or full profits is a smart move when you’re in the green, and when share prices are uncomfortably high.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
